U.S. News

AMR Profit Falls Short of Expectations on Weather Disruptions


AMR, parent of the world's largest airline American Airlines, posted a second-quarter profit that fell short of Wall Street expectations, weakened by severe weather disruptions.

AMR said its profit amounted to $317 million, or $1.08 per share, compared with $291 million, or $1.14 per share, a year earlier. The average Wall Street estimate was $1.18 per share, according to Reuters Estimates.

American Airlines CEO Gerard Arpey
Mary Altaffer

Revenue slipped 1.6% to $5.88 billion, hurt by weather disruptions that reduced revenue by $50 million and lowered profit by 12 cents per share.

AMR Chief Executive Gerard Arpey said in a statement that weather was an "enormous obstacle." The carrier said bad weather forced it to cancel 1.8% of its scheduled departures.

The airline industry has been battered in recent years by low-fare competition that makes it difficult for carriers to raise fares high enough to cover costs. Airlines mounted a recovery in 2006 as they pulled excess capacity from their systems and boosted fares.

AMR said it reduced its capacity -- the number of seats for sale -- by 4.4% in the second quarter, while its load factor -- the percentage of seats filled --was a record 83.6%. The carrier said its average fares increased 2.3% year over year.

AMR said it expects its mainline capacity to decrease by 2.1% in 2007 compared to 2006, with a 2.6% reduction in domestic capacity and a 1.3% decrease in international capacity.

Capacity reductions help facilitate fare increases. But fare hikes have been less frequent in  2007, and some experts have warned of a possible decline in domestic revenue.

Jet fuel was AMR's second largest expense after labor, totaling $1.64 billion. Prices remained historically high, but AMR paid 3.7% less for fuel than it did in the second quarter of 2006.

The company, which says it plans an average price of $2.24 per gallon in the third quarter and $2.11 per gallon for all of 2007, has 35% of its anticipated third-quarter fuel consumption capped at an average price of $1.94 per gallon.

For the full year, AMR has 31% of its anticipated full-year fuel consumption capped at $1.96 per gallon.

AMR ended the quarter with $6.4 billion in cash and short-term investments, including a restricted balance of $470 million.